Correlation Between Capital Southwest and SEI Investments

Can any of the company-specific risk be diversified away by investing in both Capital Southwest and SEI Investments at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Capital Southwest and SEI Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Southwest and SEI Investments, you can compare the effects of market volatilities on Capital Southwest and SEI Investments and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Capital Southwest with a short position of SEI Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Southwest and SEI Investments.

Diversification Opportunities for Capital Southwest and SEI Investments

-0.36

Correlation Coefficient

Capital Southwest  SEI Investments

Very good diversification

The 3 months correlation between Capital and SEI is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and SEI Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEI Investments and Capital Southwest is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Capital Southwest are associated (or correlated) with SEI Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEI Investments has no effect on the direction of Capital Southwest i.e., Capital Southwest and SEI Investments go up and down completely randomly.

Pair Corralation between Capital Southwest and SEI Investments

Given the investment horizon of 90 days Capital Southwest is expected to under-perform the SEI Investments. In addition to that, Capital Southwest is 1.92 times more volatile than SEI Investments. It trades about -0.06 of its total potential returns per unit of risk. SEI Investments is currently generating about -0.1 per unit of volatility. If you would invest  6,817  in SEI Investments on March 7, 2024 and sell it today you would lose (110.00) from holding SEI Investments or give up 1.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Capital Southwest  vs.  SEI Investments

Capital Southwest

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Capital Southwest may actually be approaching a critical reversion point that can send shares even higher in July 2024.

SEI Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SEI Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, SEI Investments is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Capital Southwest and SEI Investments

The main advantage of trading using opposite Capital Southwest and SEI Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Southwest position performs unexpectedly, SEI Investments can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SEI Investments will offset losses from the drop in SEI Investments' long position.

The idea behind Capital Southwest and SEI Investments pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.